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Tonnage tax - maintenance of prescribed levels of Community-flagged vessels

The Merchant Shipping (Fees and Taxing Provisions) Law of 2010, commonly referred to as the tonnage tax law, requires that, in order to qualify for the tonnage tax scheme, ships lawfully registered in and flying the flag of an EU Member State or any other contracting party to the European Economic Area Agreement (referred to in the law as Community-flagged vessels) must account for at least a specified minimum percentage, known as the Reference Share, of the taxpayer's fleet. The Reference Share is calculated at the date of entry to the tonnage tax scheme.

Participants in the tonnage tax scheme whose Community-flagged Share is less than their Reference Share and is not greater than 60% are generally not allowed to introduce any additional non-Community ships into the tonnage tax system until they increase their Community-flagged Share back to at least the level of the Reference Share.

However, an exception is allowed if the aggregate share of Community-flagged ships in their individual sector (owners, charterers or shipmanagers, as the case may be) has increased compared with the reference date, subject to payment of a surcharge of 10 per cent on the tonnage tax for all the qualifying non­Community ships in the fleet. In order to determine whether this option is available for a particular year, the Department of Merchant Shipping carries out an annual review in order to assess the Community-flagged share of each sector. The review for 2016, which has recently been completed, shows that the global share of Community-flagged ships has decreased in comparison with the Reference Share for all categories of tonnage tax payers, meaning that for the fiscal year 2016 the option of introducing additional non-Community vessels and paying the surcharge is unavailable to any category of tonnage tax payers.

Owners of foreign ships, charterers and ship managers whose Community-flagged Share at 31 December 2015 is less than 60% and is less than their Reference Share may not include additional non-Community ships in the tonnage tax scheme until they increase their Community-flagged Share to at least their Reference Share. Any additional ships will be treated as non-qualifying ships, in respect of which the taxpayer will be liable to corporate income tax on their profits, and must maintain separate books, records and accounts as provided by article 44 of the Tonnage Tax Law.